From New Year's Day, private school fees are set to be subject to VAT as ministers reportedly prepare for a potential wave of school closures. The government plans to end the charitable status of fee-paying schools, which currently exempts them from paying 20 per cent value added tax (VAT) to the Treasury, effective from January 1, 2025.
Chancellor Rachel Reeves announced this measure in the Autumn Budget, stating that any fees paid from July 29, 2024, when the policy was first introduced by the government, relating to the term beginning in January 2025, will be subject to VAT. This change is projected to generate £1.5bn in 2025-26, increasing to £1.7bn by 2029-30, according to the government, as reported by .
English private schools with charitable status will also lose their eligibility for business rates charitable rate relief from April 2025, bringing the total raised to £1.8bn by 2029/30. Ministers claim that the revenue generated will enable thousands of state schools to receive a funding boost next year, with the core schools budget increasing by £2.3bn next year, in an effort to fulfil the government's education mission to "break down barriers to opportunity".
Prime Minister Sir Keir Starmer has committed to hiring 6,500 new teachers, enhancing school standards and improving the Special Educational Needs and Disabilities (SEND) system. Reeves stated: "Ending the VAT break for private schools means an additional £1.7bn a year can go towards our state schools where 94 per cent of this country’s children are educated."
Educational Secretary Bridget Phillipson emphasised that high educational standards should be accessible for all, not just those who can afford them, stating: "High and rising standards cannot just be for families who can afford them, and we must build an education system where every child can achieve and thrive."
However, there are concerns that the government is preparing for a possible increase in demand for state school places amid fears of private school closures. This follows reports by The Times that officials are bracing for the impact of VAT being added to private school fees in the Autumn Budget, potentially placing some institutions in jeopardy – especially smaller ones with more modest fees.
Government sources revealed that such schools are under close observation. Addressing the potential fallout, a government source confided to The Times: "We have to plan for the worst. But there’s a limited amount we can do, so contingency plans are necessary."
